Apples to Apples: Benchmarking Your Restaurant’s Performance
Whether your restaurant is currently profitable or not, a best practice you should begin now is analyzing how your restaurant compares to industry benchmarks.
The following financial ratios and industry averages for profitable restaurants are helpful for benchmarking your restaurant’s financial performance:
- Prime Costs/Sales – Prime costs consists of cost of goods sold and labor costs. Industry averages suggest that prime costs for a profitable restaurant should be between 60-65% of sales.
- Net Income/Sales – Full service restaurants average a 3% net income to sales ratio, while quick restaurants average 6%.
- Rent/Sales – Full service restaurants average 6% rent to sales ratio, while quick service restaurants average 9%.
- Insurance/Sales – Restaurants’ average amount of minimum insurance coverage to be approximately 2.5% of sales.
- Sales to Original Investment –
- Leased Restaurant – Annual sales should be 2½-3 times the total investment.
- Owned Restaurant – Annual sales should be 1.2 times the initial investment.
- Sales to Square Footage – Annual sales should be $300 times the total restaurant square footage.
- Employee Meals/Sales – Employee meals should average 1½% – 3% of total sales.
Regarding the above ratios, the following are factors to consider:
- A ratio above that exceeds industry averages can be offset by another ratio that is significantly less than industry. For example, in a full service restaurant, rent can be greater than 6% of sales as long as food costs are lowered.
- Compare the ratios to different time periods. For example, prime costs/sales for the current month should be compared to the previous month and the same month in the previous year.
Ratio analysis is an important tool in an industry with tight profit margins. Industry standard ratios can serve as a road map to a profitable restaurant.
ORBA’s Restaurant Group can help you determine how your restaurant compares to industry averages, as well as assistance with addressing areas for improvement.